A survey conducted in June by Ernst & Young and the Economist Intelligence Unit reveals that nearly half of the oil and gas industry executives surveyed believe that their business has been less severely impacted by the economic downturn than other sectors. Nearly half of survey respondents even realized business improvements. The respondents primarily represented major international oil and gas firms, which were well capitalized before the downturn.

"These findings are consistent with what we're observing in our day-to-day work with some of the top oil and gas companies in the world," said Marcela Donadio, Ernst & Young LLP, Americas Leader of Oil and Gas. "Compared to the last major collapse in the 1980s, today's oil and gas industry is leaner, more efficient and better-positioned to weather market turmoil and take advantage of opportunities in the recovery."

Optimism in the storm

Oil and gas executives are also more optimistic than other respondents about the economic outlook. Fewer oil and gas executives indicated that the economic downturn has impacted their business more than they expected, 45% versus 56% of all respondents.

Preserving and creating cash

Eighty-eight percent of oil and gas executives said they had been "very responsive" or "responsive" to cost management issues over the past 12 months, compared to 76% of executives from all industries. A majority of respondents also reported that their company had been "effective" or "very effective" at achieving overall cost savings over the past 12 months, particularly in the areas of internal control and supply chain effectiveness.

Oil and gas respondents were significantly more likely than respondents from all sectors to report that they have scrutinized their relationships with customers and suppliers more closely over the past 12 months, and negotiated contracts with suppliers over the last six months (60% of oil and gas respondents versus 43% of overall respondents).

Thinking ahead

To emerge from the economic crisis ahead of the competition, oil and gas companies are focused on transactions. When asked what actions they would take to emerge stronger than competitors, respondents' top four picks all involved acquisitions (55%), divestitures (36%) and strategic alliances (40%) - all at higher percentages than overall responses which were 34%, 29% and 33% respectively. Elsewhere in the survey, more than two-thirds of respondents reported an increase in the importance of restructuring the business at their firms. The survey points to greater restructuring activity through mergers and acquisitions, divestitures, joint ventures and alliances.

In the meantime

Ernst & Young has identified a path forward that includes a broad range of actionable responses being taken by many oil and gas companies, including:

- Securing the present by focusing on the most promising revenue opportunities

- Prioritizing capital expenditures and assessing risks

- Taking a carefully calculated and controlled approach to decreasing costs and creating capital

- Examining the project portfolio with geographic challenges and opportunities in mind.

Economic growth and liberalization of markets throughout the world spurred significant demand for oil and gas over the past few years. While that demand has been depressed since the onset of the economic downturn, it will return. And when it returns, today's oil and gas industry stands ready to respond.